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Speech to the Liberal Democrat Business Forum, London 1996

Paddy Ashdown (Liberal Democrat)

Location: London

Ladies and gentlemen, we are now less than two hundred days away from the last election of the twentieth century.

It would be fair to say that in economic and commercial terms, it has not been our nation’s most successful century.

Lack of competitiveness and underinvestment; short-termism and inflexibility; poor industrial relations and stop-go economic management; a failure to modernise and a failure to produce top-quality goods - all have contributed to a century of economic underperformance and relative decline.

As we stand on the eve of the next Millennium, we should be focusing on how we make the next century a century of lasting economic success. On how we again become, as Britain was in the nineteenth century, a powerful economy of innovation, enterprise and international trade - outward-going, playing its part in the world, and creating new wealth and opportunities for the British people.

The role of Government in this process is complex, but central. Tonight I want to focus on seven key areas where the right approach from Government is crucial for business success and sustained national prosperity in the years ahead.

First, in providing economic stability.

Second, in creating a culture of long-term investment.

Third, in ensuring that Britain has a well-educated, highly-skilled and adaptable workforce.

Fourth, in improving flexibility in the economy and labour market.

Fifth, in creating a competitive domestic economy, in which innovation and enterprise flourishes because small businesses are given the help they need to succeed.

Sixth, in securing benefits for British business from our membership of Europe.

And seventh, in fostering a culture of partnership in the British economy.

The persistent failure of British governments in these seven areas lies at the heart of Britain’s economic underperformance over the last fifty years.

Getting the right approach from government in each of these areas is vital if we are to put Britain on a better course for the next fifty years.

Stability

Let me start with the macro-economic framework.

Nothing has done more damage to British business over the last fifty years than the failure of successive governments to provide a stable economic framework.

Repeated cycles of boom and bust, and stop-go economic management have hindered long-term planning, undermined long-term investment, and made it harder for small enterprises to survive and expand.

At the same time, the lack of market confidence in the commitment of successive governments to maintain low inflation and the repeated resort to competitive devaluation have saddled British businesses and citizens alike with long-term interest rates 1-2% higher than Germany or France.

Liberal Democrats are alone in British politics in advocating a whole new approach to economic management, to stop politicians messing around with the economy for short-term political advantage, to boost market confidence in British economic management, and to reduce interest rates as a result.

Central to our economic programme at the next election will be plans to give operational independence to the Bank of England, reconstituted as a more nationally-representative UK Reserve Bank.

As in New Zealand, Parliament would lay down the economic strategy it wants the central bank to maintain, and the bank would be responsible for the day-to-day decisions to meet the objectives.

This would represent an historic change in British economic management, and lay the foundations for new economic stability that businesses in this country are crying out for. Liberal Democrats say yes. Both Conservative and Labour say no. 

Long-Term Investment

The same sort of short-termism lies at the heart of our failure to foster long-term investment in research and development, modern equipment, infrastructure and skills.

Ever since the end of the last century, we have failed to invest in new products and processes, new technologies and new designs, and we have lost market opportunities as a result.

To export more, and earn our way in the world, we must improve our competitiveness.

We have three routes open to us. I shall call them the road to nowhere, the cul-de-sac, and quality street.

The road to nowhere follows the route of lower and lower labour costs, fewer and fewer protections for workers and low-skill production. If that is the place we want to get to, then we will find it very crowded. There are plenty of others who can beat us with lower costs and cheaper production. Not surprisingly, this approach to workers and costs is one that most successful firms reject, and as a nation we should reject it too.

The second route leads into the cul-de-sacs of protection and intervention. There will always be those who see protection as the source of security in a tough global economy. But the historic experience of protection is that weak domestic sectors become less competitive; strong sectors are hit by reciprocal protection; and domestic consumers lose out both ways. In today's increasingly interdependent market, protectionism is a dangerous illusion.

The third way is quality street - to embrace the global market as a great opportunity, and become more competitive by expanding our economy's productive potential and strengthening our productive base. Not just competing on COST, but on QUALITY and new ideas; new processes and new products; added value and skilled workmanship.

This way depends on long-term investment - and the right SORT of investment - in infrastructure, R&D, innovation and skills.

And in setting the climate for long-term investment, government must lead the way.

This will not be easy. To change a law is relatively simple. But to change a culture is very difficult. But there are things a Government can and should do to encourage a culture change in the British economy away from short-termism and under-investment.

First, only government can increase incentives to long-term investment in the tax system.

Of course, there are limits to what can be done through tax incentives. Most big businesses I talk to would prefer cuts in corporation tax to capital allowances. But certainly for small firms there is a strong case for capital allowances to encourage investment.

Second, if we want to modernise Britain's infrastructure, starting with our transport infrastructure, or boost spending on science, research and development, we need public investment as a bedrock on which private investment can build.

Private sector capital makes possible projects the public sector would never be able to fund. Public sector support can make viable projects which the private sector would never dare touch alone. But creating a successful climate for public-private investment means having a realistic understanding in the public sector about the sharing of risks - and the lack of such understanding is the reason why the Private Finance Initiative has had such limited success.

Year after year, we have seen cuts to capital programmes. This is the wrong way to go. Of course we need to control public spending. But our public accounts still fail to recognise the difference between consumption and capital investment. It is time to make that distinction, so that we can USE capital investment to help build long-term recovery.

Once again, only the Liberal Democrats are prepared to reform the antiquated Treasury rules that stop sensible capital investment in everything from new homes to local transport improvements.

Education and Training

The third area where government has a crucial responsibility is in improving the education and skill levels of the British workforce.

In a world of footloose capital, the skills of a nation's people will be far and away its most important asset.

Yet statistic after statistic exposes Britain’s underinvestment in education, and the extent to which we are now lagging behind our competitors in skill levels.

This year Britain fell from 35th to 42nd in the world education league table, slipping below Argentina, China and Turkey.

It is no surprise - but little comfort - to discover that some British firms wishing to expand are finding it hard to recruit workers with the skills and basic education they need.

That is why the Liberal Democrats see investment in education and training as the nation’s number one priority, and the number one call on precious national resources - our aim, to make Britain the world’s number one learning society.

And once again, it seems, the Liberal Democrats are alone in demonstrating the sort of commitment that is needed for economic success in the next century.

Tonight, Parliament votes on the last Budget before the election.

This is the moment when, after all the words, people can judge the political parties on what they do in practice.

The Conservatives will, I have no doubt, vote for the Budget Ken Clarke gave them - a Budget that is more con-trick than conservative; a Budget which gives with one hand and takes away with the other; a Budget that does too little to tackle the nation’s huge debt burden, too little to lock in low inflation, too little to prevent interest rate rises in the next few months, too little to get people back to work, and crucially and above all, too little to invest in education and training.

The Liberal Democrats will tonight force a vote on the 1 penny cut in income tax, and oppose it, on the grounds that the £2 billion pounds released into consumption will overheat the economy, spur inflation, and would have been much better invested in improving education and training.

The money this would raise would give every three and four year old in Britain pre-school education, reduce class sizes and improve education in our schools, and create better training opportunities for adults in and out of work.

The question is: what will the Labour Party do?

If they vote with us, there is a chance of defeating the Government, a chance to put education before tax bribes.

Yet I am told they will neither vote for it, nor vote against it - they will abstain. How depressing.

But in April and May next year they will campaign against the cuts in education which they know very well are the inevitable consequence of the tax cuts they refuse to vote against tonight. That is pure hypocrisy. If you haven’t got the courage to vote against these tax cuts, then you haven’t the right to campaign against their consequences in three months time.

Tonight I call on the Labour Party to do something a bit braver - to match all Tony Blair’s rhetoric about how education is his passion with a passionate vote to do something for education.

If the Labour Party do not join us tonight, then all the rhetoric will be exposed as a sham, and all the moaning and groaning about cuts to services that we will hear from the Labour Party in the months ahead will be nothing short of hypocrisy.

And once again, it will be clear to the British people, that if they want anything done to really improve education and skill levels in this country, only the Liberal Democrats are prepared to do something about it.

Flexibility

One reason why high-quality education is so important is to give people in this country the core skills to make them adaptable.

For successful economies of the future will be flexible economies, able to adapt to change, made up of go-getting companies developing new products and discovering new markets, and with workers who are adaptable and confident in the fact of change.

And this brings us to the fourth key role for Government - creating a flexible labour market to support this flexible economy, and to do so in such a way that individuals can see flexibility as an opportunity, not a threat.

Better basic education, and repeated opportunities for retraining are one part of this.

Profit-sharing and employee share ownership are another part.

So are basic standards of worker protection and a sensible, flexible system of pay protection.

And a more effective welfare system is another part.

At present our benefits system traps people in poverty and dependency, instead of helping them back to work. The system discourages mobility, flexible patterns of work, a mixture of work and study, home-working and flexible retirement, when we should be encouraging all these things.

It is essential that the system is reformed - to stop people getting trapped out of work, to give them better access to childcare and retraining, and to remove the poverty traps that are such a barrier to work for so many out of work today.

Small Businesses in a Competitive Economy

And if government should be helping people to learn and train, and to get back into work, it should be helping them, too, when they try to be enterprising. This is important, not just because enterprise is fulfilling and liberating for individuals, but because it is vital for a strong economy

In a fiercely competitive world market, a strongly competitive domestic market is vital, with government taking much stronger action against monopolies and restrictive practices.

And this sort of highly competitive economy will depend on a large and dynamic small business and self-employed sector.

That in turn requires effective government policies to help small businesses, self-employment and enterprise - freeing small companies from red tape and administrative burdens; simplifying and easing the tax burden on small firms; making it easier for small businesses to get hold of long-term capital; legislating where necessary to help small businesses overcome problems like late payment of debt.

Europe

The fifth area where businesses needs a better deal from government is in representing their interests in Europe.

For forty years, British governments have been the ambivalent Europeans - uncertain and uncommitted, laggards on the sidelines, when we should be leaders at the heart of Europe.

It is absolutely vital for Britain's financial and business communities that we are at the centre of Europe, shaping events, rather than forever having them shaped by others.

This country’s greatness has never come from looking inwards; from retreating behind our island walls and shouting insults at foreigners. It has come from going out in the world and making things happen - trading, exploring, settling, building bridges, making fortunes, shaping the world’s laws and building its institutions.

And the same should be true in the next century within our own continent of Europe, where we have so much to gain and so much to contribute.

What is undoubtedly true is that the interests of British business are best served - not by alienating our partners with insults and phoney fights - but by Britain being inside Europe, resisting old corporatist ideas, putting the case for a more flexible approach - at a time, incidentally, when the debate in Europe is moving in Britain’s direction on many economic issues..

In the words of Dick Evans, Chief Executive of British Aerospace: “The United Kingdom has to work to change those aspects of Europe which it doesn’t support from inside the Community rather than from outside”.

Partnership

This brings me to my final subject - partnership. For our failures in this area have been one of our biggest economic problems over the last century.

Partnership has never been one of Britain's greatest strengths. Too many of our systems are built on institutionalised confrontation, from politics, to law, to industrial relations.

Over recent decades, our economy has suffered great damage, first, from governments which believed partnership meant control and unhelpful intervention, and then, from governments which believed the essence of partnership was doing as little as possible.

But there is, of course, a different sort of partnership - and it will be one of the keys to success in the future.

Listen to the words of Konoke Matsushita:

"For you in the West the essence of management is getting the ideas out of the heads of the bosses into the hands of labour. For us, the core of management is precisely the act of mobilising and pulling together the intellectual resources of all employees. Only by drawing on the combined brainpower of all its employees can any large organisation face up to the turbulence and constraints of today's environment".

If that is true for a business, it is also true for a nation. We in Great Britain plc have to recognise that we all have a vested interest in each other's success - in every single person in this country having the best opportunities to make the most of their potential.

"Stakeholding” is an idea that has come into vogue over the last couple of years, though it has been somewhat discredited by Labour’s failure to flesh out what the idea means, and the resulting sense that somehow is all about favours for the Trade Unions.

But it is an idea which Liberal Democrats have been using and discussing for a decade now - and idea based, not on theory or a soundbite, but on the good practice of successful businesses, which have led the way in mobilising the interlocking interests of their "stakeholders".

As the RSA report on "Tomorrow's Company" put it: "a winning company must inspire its people to new levels of skill, efficiency and creativity, supported by a sense of shared destiny with customers, suppliers and investors".

Shared objectives; partnership; teamwork. If these are the ingredients for success today, then politics has a long way to go and a lot to learn from successful businesses.

Successful businesses are breaking free from an adversarial culture of industrial relations. Politics is becoming more adversarial.

Successful businesses are replacing hierarchical structures with team networks, devolving responsibility and decision-making. In politics, centralisation is being strengthened and those nineteenth century, paternalistic hierarchies are lovingly preserved.

Successful businesses create partnerships and work with others. Westminster would rather die than share a decision with anyone else.

All I would say is that with less than four years until the next century, politicians had better wake up to the importance of partnership pretty fast.

Government and Business : Time for a New Partnership

I've been in politics long enough to understand why business people have been nervous about alternatives to the Conservatives.

But there is now, I believe, an important change in British politics. Instead of being frightened of change, British business should look on change as an exciting opportunity - and on the Liberal Democrats as a source of reassurance.

There are the things the Conservatives have done over the last seventeen years which needed to be done, and which should not be undone - like reducing Trade Union power, and liberalising our economy.

But when you consider the economic mismanagement, the underinvestment, the boom-and-bust, the two deep recessions, and the Government’s damaging European policy, I do not believe you can say any longer that this was a government which had been GOOD for business.

I believe that Britain needs change and needs it badly. But we must ensure that change enables the country better to face its challenges rather than to retreat from them.

The Liberal Democrats are crucial in this.

The Liberal Democrats are the guarantee that Britain after the Conservatives does not return to economic mismanagement, punitive rates of taxation and favours for the Unions.

But the Liberal Democrats are also the guarantee of a different economic approach to what we have had for the last fifty years.

Only the Liberal Democrats will stop politicians messing around with the economy, by giving the Bank of England the independence and responsibility to maintain economic stability.

Only the Liberal Democrats will reform the absurd Treasury rules that currently hold back long-term investment.

Only the Liberal Democrats will guarantee the hard cash that is needed for a skills revolution in this country, as we will demonstrate once again tonight on the Budget votes.

Only the Liberal Democrats are united enough to effectively represent the interests of British business on Europe.

Only the Liberal Democrats are free from the vested interests of unions and big business donors that is essential for effective partnership.

And only the Liberal Democrats are committed to creating an environmentally sustainable economy, which is central to the agenda for twenty-first century Britain.

Successful advanced economies in the future will be the clean economies - green economies - as efficient in their use of energy and raw materials as they are in their use of capital and labour.

That is why the Liberal Democrats are committed to whole range of measures to build environmental sustainability into national economics - on taxation, for example, shifting tax off things we want more of, like jobs - reducing employers’ National Insurance Contributions - and onto things we want less off, like pollution.

You see, in all these ways I want the Liberal Democrats to be the backbone and driving force for the modernisation of Britain - for our culture, our practices and our institutions.

Our aim is a flexible, market-based economy; a sustainable economy; strong on competition; dynamic in the small business sector; an economy built on political and economic stability; driven forward by long-term investment in the skills of our people and the ideas in their heads; and anchored firmly at the heart of the European partnership.

The kind of economy, in short, which enables Britain to see the challenge of the global economy, not as a threat, but as an enormous and exciting opportunity.

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